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DHHL UPDATEDHHL UPDATEPart I: Audit ResponsePart II: Vacant Homes

Part III: Post-$600M Settlement

November 21, 2013

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DHHL PORTFOLIO – JUNE 1980

DHHL also had a small guarantee loan portfolio with Farmer’s Home (former name for USDA‐RD), but the portfolio was not included in the 1979‐1980 Annual Report

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DHHL PORTFOLIO – JUNE 1980

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DHHL PORTFOLIO – MAY 2013

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DHHL PORTFOLIO – MAY 2013

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IN THE PAST SIX MONTHS

• Established the cross-agency delinquency response team (DQ Team)

• Analyzed audit findings and recommendations – Goal to IMPROVE

• Assessed internal processes to identify systemic challenges

• Identified initial reforms; target severely delinquent part of portfolio

• Began implementation

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• Improve loan tracking system• Improve reports to HHC• Risk management plan • Begin review of loan policies and procedures• Implement greater internal controls• Benchmarks (as needed)

FOCUS AREAS FOR SIX MONTHS

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• Focus on most delinquent portion of direct loan portfolio– 180+ days Tracking System– East Hawaii direct loan portfolio

• Loss mitigation partnerships

• Relationship with FHA

• Added contracted services to provide one-on-one lease cancellation prevention services

IN ADDITION

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CNHA WORKING GROUP

• Invited to present recommendations to Hawaiian Homes Commission – September 2013 Meeting

• Met with Deputy Director, Acting HSD Administrator, ICRO Officer and other staff– October 21, 2013

• Recommendations under review

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STEP 1: GOOD INFORMATION

LOAN TRACKING SYSTEM

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• Start with most delinquent section of the direct loan portfolio (180+ days delinquent)

• Stand-alone pilot system built internally by staff– As of December 1, 2013 integrated into other

DHHL information systems (APPX Tracks all direct loans delinquent 180+ days)

• Tracks loan/lessee thru each step of the contested case hearing and cancellation process (HAR, Title 10, Chapter 5)

• Produces easy-to-understand reports

LOAN TRACKING SYSTEM

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• New reports show delinquency volume and status at-a-glance, by district

• New reports can be produced immediately, on demand

• Track exactly where loan/lessee is in the process

• New report format presented to HHC at October 2013 meeting

IMPROVE DELINQUENCY REPORTS

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STEP 2: MANAGE RISK

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RISK MANAGEMENT PLAN• New risk report estimates TRUE risk and

exposure to the Trust• Looks at Assessed Value of House –

Outstanding Balance = Equity/(Loss)• Conservative estimate based on 70% of the

assessed home value• Assessed value for every delinquent loan • Report presented to HHC at October 2013

Meeting• Next steps: evaluate reserves, determine

whether they are sufficient, advisory group

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STEP 3: IMPROVE LOAN POLICIES AND PROCEDURES

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• Loan policies and organized in two volumes– Volume 1:

• Loan origination• Loan underwriting (new)• Loan collections

– Volume 2:• Contested case hearings• Lease cancellation• Re-awards

– Includes recommendations from the CNHA Working Group• On third revision• Next steps: AG Review and HHC approval

REVIEW OF LOAN POLICIES

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STEP 4: GREATER INTERNAL CONTROLS

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• Interest rate policy for direct loans reviewed– Streamline refinance/rate reduction workshop

presented to HHC July 2013– Program implemented in August 2013

• First rate reduction since 1996• Previously 6%, now 4.5%

• Increased documenting standards on delinquent loan collections

• Review of loan presentations by HHC prior to ratification

GREATER INTERNAL CONTROLS

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Tracks Processes

Tracks Documentation•Electron•Paper

ic

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ADDITIONAL EFFORTS

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• Met with 5 entities receiving National Mortgage Settlement monies

• Legal Aid Society of Hawaii• Hawaii Homeownership Center• Hawaiian Community Assets• Hale Mahaolu• Consumer Credit Counseling Services of Hawaii

• HHFDC grant from HUD for services with Hale Mahaolu

• Additional contracted services to assist –DHHL/HHC Referral

SERVICES TO PREVENT LEASE CANCELLATION

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• Premier trainer in loss mitigation/ foreclosure prevention; financial literacy

• Training provided to DHHL staff; NAHASADA sub-recipients; Native CDFI Federal Credit Unions

• Future training planned

NEIGHBORWORKS TRAINING

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• Meeting with FHA in D.C. on 8/1/13– Requested confirmation DHHL has note before

any claim is paid by FHA– Inquired whether HHC may set loan limits via

consents– Requested requirement for increased loss

mitigation work for lenders • Meeting with HUD Hawaii Field Office

on 9/6/13

RELATIONSHIP WITH FHA

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• Of 114 loans 180+ days delinquent in direct portfolio, 51 in East Hawaii (45%)

• Attempts made to contact all delinquent lessees (79 lessees)

EAST HAWAII PILOT PROJECT

In Repayment Plan – 67%

In Process – 14%

No Contact – 19%

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EAST HAWAII PILOT PROJECTNEW LOSS MITIGATION PRODUCTS

• Most of loan balances are smaller; Lessees have equity• HHC Approved November 2013• Uses NAHASDA funding• Eligibility:

– 80% AMI or below– Loan balance < home value– Kupuna on fixed income or disabled or experiencing hardship

• 3 new products developed: – NAHASDA funding pays off past due amount (sits as a silent second:

captured in transfer/”sale”, cash-out refinance– Refinance to 4.5%– Refinance 75% of Loan @ 4.5% and defer 25% to end of the mortgage

with no interest (balloon). HHC can forgive or discount balloon.

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VACANT HOMES

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STATUS

• A number of lots that appear vacant are actually leased to a homesteader

• In October, DHHL received a list of “vacant” homes from the Star Advertiser– Of 13, only one is available for re-award to

another beneficiary

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COMPLETION OF $600M SETTLEMENT

PAYMENTS

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BACKGROUND

• Act 14 (1995) settled land claims

• Constitutional obligation to provide “sufficient sums” for HHCA 4 purposes still remains

• DHHL recognizes State has limited resources

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FUND BALANCESAvailable Cash, FY2002

Available Cash, FY2012

Revolving Funds $20.3 M $13.7 MNative Hawaiian Rehabilitation Fund $12.6 M $2.9 MHawaiian Home Lands Trust Fund $80.8 M $98.6 MOther Trust Funds $22.3 M $19.6 MHawaiian Home Administration Acct. $7.5 M $18.1 MDHHL Revenue Bond Special Fund $30.5 M $12.4 M

TOTAL BALANCES $174.1 M $165.3 M

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LONG TERM OBLIGATIONS

FY2002 FY2012

Revenue Bonds $14.9 M $40.2 MNotes Payable (HHFDC) -- $17.2 MCapital Lease Obligation -- $22.5 M

TOTAL $14.9 M $79.9 M

BALANCES

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HHL TRUST FUND EXPENDITURES

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NATIVE HAWAII REHABILITATION FUND

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DHHL WORKLOAD

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ACTUAL EXPENDITURES

FY2002 FY2012

Hawaiian Home Operating Fund $4.8 M $7.7 MNative Hawaiian Rehabilitation Fund $2.0 M $1.5 MHawaiian Home Administration Acct. $4.5 M $7.6 M

TOTAL EXPENDITURES $11.3 M $16.8 MAnnual growth rate over 10 years 4.12%

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FIXED PAYMENTS

FY2002 FY2012

Revenue Bond Payments $1.7 M $3.0 MCapital Lease Expense -- $1.7 MNotes Payable -- $2.2 M

TOTAL $1.7 M $6.9 M

Increase over 10 years 313.6%

Expenditures + Fixed $12.9 M $23.7 M

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REVENUE

Department of Hawaiian Home LandsCash Receipts & Budget to ActualFY 2009, 2010, 2011; Budgets 2012, 2013Operating Budget

Cash Receipts FY 2009 FY 2010 FY 2011Actual Actual Actual

251 General Leases 7,340,206 7,223,270 358,486252 Revocable Permits 3,696,650 3,419,476 3,736,608300 Interest-Hawaiian Home General Loans S323 3,983,784 4,386,108 4,574,167310 Interest-Hawaiian Home Loan Fund S302 79,600 72,888 64,522288 Investment Pool Interest 1,578,299 1,012,341 411,984256 Water Revenue from use of Govt Water 58,375 42,944 54,715257 Sugar Revenue from use of Govt Land 208,983 236,816 353,170693 Payment from OHA for Revenue Bonds 3,000,000 3,000,000 3,000,0001341 Lease Rents, Hall Rentals, Water Payments 580,436 759,057 753,6291364 Refund/Reimbursement of PY Expenditures 222,125 404,480 487,7331366 Vacation Leave Transfer from Other Agencies 31,688 20,922 2,6081815 Principal Repayments-NHRF T924 418 429 451Cash Receipt Total 20,780,564 20,578,731 13,798,073

Cash ReceiptsFY 2009 FY 2010 FY 2011 FY 2002 FY 2012

Land Dispositions 11,036,856 10,642,746 4,095,094 Land Dispositions 7,055,037 12,095,094 Interest Earnings (Loan Investment) 5,641,683 5,471,337 5,050,673 Interest Earnings (Loa 8,570,537 5,050,673 NHRF Revenue 267,358 279,760 407,885 NHRF Revenue 749,847 407,885 Payment from OHA (Revenue Bonds) 3,000,000 3,000,000 3,000,000 Payment from OHA (R - 3,000,000 Other 834,667 1,184,888 1,244,421 Other 241,021 1,244,421 Cash Receipt Total 20,780,564 20,578,731 13,798,073 Cash Receipt Total 16,616,442 21,798,073

Expenditures and EncumbrancesFY 2009 FY 2010 FY 2011

Personnel 11,191,568 10,515,952 9,814,831 Other Expenditures 10,593,005 13,575,844 12,402,544

FY 2009 FY 2010 FY 2011Total Receipts 20,780,564 20,578,731 13,798,073Total Expenditure 21,784,573 24,091,796 22,217,375

-1,004,009 -3,513,065 -8,419,302-5%

Expenditures and EncumbrancesActual Actual Actual Actual

General Fund G-001-I 450,470 0 0 0General Fund G-002-I 142,710 0 0 0Admin Account S-325-I 3,513,151 3,562,053 3,298,712 5,668,459Admin Account S-326-I 1,961,946 1,927,340 2,044,258 0Operating Fund T-905-I 3,251,563 3,011,073 2,513,013 4,460,996Operating Fund T-906-I 1,871,728 2,015,486 1,958,848 0

10-Personnel Total 11,191,568 10,515,952 9,814,831 10,129,455General Fund G-001-I 0 0 0 0General Fund G-002-I 14,900 0 0 0Admin Account S-325-I 1,000,225 588,393 485,211 4,074,934Admin Account S-326-I 2,720,462 3,386,932 3,276,848 0Operating Fund T-905-I 0 0 0 0Operating Fund T-906-I 0 0 0 0Operating Fund T-915-I 5,052,644 4,654,531 3,372,313 3,376,769Native Hawn Rehab Fund T-924-I 1,047,098 1,946,920 2,068,172 1,464,853DHHL Revenue Bond Fund S-350-I 757,676 2,999,068 3,200,000 3,200,000

20-Other Current Expenditures Total 10,593,005 13,575,844 12,402,544 12,116,556

Department Total 21,784,573 24,091,796 22,217,375 22,246,011

Total 0 0 0 0

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GOING FORWARD

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UNDIVIDED INTEREST

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5

10

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0 <$50K $50K $75K $100K $150K $200K $250K $300K $350K+

Based on Waiohuli Undivided Interest Survey on 6/2013. Percentages derived from categories of loan qualification amounts of survey respondents ($50,000 step increase for each category) divided by

total survey respondents.

LOAN QUALIFICATION

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GOING FORWARD

• Absorbing the existing lots– Vacant residential lots (i.e.,

infrastructure, no house)– Increase use of agricultural lots

• NAHASDA to assist 80% AMI families

MAXIMIZING EXISTING INFRASTRUCTURE INVESTMENT

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GOING FORWARD

• “Sufficient” General Funds for operations and administration– FY 2014 - $9.6M– FY 2015 – Ask $27.1M operating

• Invest cash balance of HHL Trust Fund $98M– 5% Return = $5M (approx.)– 6% Return = $6M (approx.)

REVENUES

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GOING FORWARD

• Enhancing our revenues using available lands– Clarification of trust assets

• Mineral rights• Expedited leasing of improvements (e.g.,

warehouses) on a short-term basis

• Alternative energy expertise contracted – Hydropower, Kauai– Wind, Maui

REVENUES

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GOING FORWARD

• General lease extensions for renovation– E.g., Prince Kuhio Plaza in Hilo– Rulemaking in progress

• Coordinated development with other state agencies– Pulehunui, Maui (DHHL, DLNR, PSD)

REVENUES

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GOING FORWARD

• Clarifying county role and DHHL role– FY 2015, ask for repair and maintenance

funding for Papakolea sewers ($12M)

• Reduce fixed cost expenses ($867K savings annually)– Refinance HHFDC Note ($500K)– Lease out office space to State tenants ($367K)

REDUCING OUR COSTS